A spotlight has been cast on the Chinese bureau ever since it carried out extensive research into major Chinese producers’ products and output in the first quarter of this year, Fastmarkets understands.
These renewed probes into China’s cobalt industry by the SRB have been broadly interpreted by market participants as a prelude to a fresh round of stockpiling by the state reserve authority – especially at a time when the country has shown its determination to develop its aviation industry and blue metal prices have fallen off last year’s highs. In the aviation sector, cobalt is a raw material of super alloys used to make airplane engines.
Fastmarkets assessed the price for cobalt metal, min 99.8%, in China’s domestic market
at 245,000-285,000 yuan ($36,501-42,461) per tonne on Wednesday March 27 – its lowest level in more than two years. This compares with the multi-year high of 675,000-690,000 yuan per tonne reached a year earlier.
The SRB is no stranger to the cobalt market; in late 2015 to early 2016, the state agency bought around 5,000 tonnes of the blue metal
, accounting for about 12.5% of the annual global cobalt metal output at the time.
Indeed, quite a few market participants who have struggled with the recent decline in cobalt prices have expressed a longing for a fresh round of buying from the SRB after buying activity in China’s domestic market became stagnant some months ago.
These participants are hopeful that the resultant reduction in inventories in China should the state agency conduct any stockpiling will be the catalyst to push Chinese cobalt metal prices up.
This dynamic has been seen in the cobalt market before; in the middle of 2016, international cobalt metal prices began to tick upward mainly against a backdrop of electric vehicle optimism, following a five-year period of depressed price levels.
Concurrently, the SRB’s stockpiling in late 2015-early 2016, which had largely depleted cobalt inventories in China, helped pave the way for a rebound in Chinese domestic prices for the blue metal, allowing China’s domestic market to track the improvement seen in international markets in a timely and seamless manner.
The reduced stock levels in China also caused an increase of imported metal entering the country, thereby also decreasing some of the overhanging stocks in the international market.
After the SRB’s last round of stockpiling, Chinese imports of cobalt metal hit a all-time high of 4,062 tonnes in 2016, according to China customs data. This compares with 986 tonnes and 2,785 tonnes in the prior and following year.
Price rebound diminishes likelihood of SRB stockpiling cobalt
But with the recent turnaround in both international and Chinese cobalt metal prices, the likelihood of fresh stockpiling by the SRB has been reduced, according to market participants.
Fastmarkets’ standard-grade cobalt price
rose to $14.25-15.40 per lb on Wednesday April 3, jumping 7.8% in only three pricing sessions.
Similarly, Fastmarkets’ Chinese cobalt metal price
came in at 265,000-295,000 yuan per tonne on April 3, up 5.7% in just one week.
With recent active restocking from consumers, Chinese cobalt metal price is likely to continue to make gains as market participants broadly expected. This, in turn, will falter any potential restocking activities by China SRB expected by market participants earlier, market sources said.
Which price level is likely to entice China SRB to restock?
In fact, even ahead of the Chinese cobalt price's rebound this week, the consensus was the price level was not low enough to entice the SRB to buy anything yet.
In the most recent round of stockpiling in February 2016, the bureau purchased 2,800 tonnes of cobalt metal at prices of 201,000-203,000 yuan per tonne, 38% lower than the latest Fastmarkets assessment.
“When SRB purchased units last time, the price was just bit over 200,000 yuan per tonne, and you see there is still some sort of gap there,” a Chinese producer said.
“If SRB is going to buy cobalt metal again, they won’t buy anything until Chinese spot prices moved down to the level where they made the procurement last time,” the Chinese producer said.